QUESTION 3

1. Mr. Thabang a retired wealthy analyst is considering the purchase of a share of Standard Bank. The stock will pay a $3 dividend a year from today. This dividend is expected to grow at 10 percent per year for the foreseeable future. The investor thinks that the required return on the stock is 15 percent. Given his assessment of Standard Banks risk, what is the value of a share of this stock? (3 marks)

2. Mr. Thabang believes Absa also offers investment opportunities and has been monitoring it for the past year. It has EPS of $5 as at the end of 2018, a dividend payout ratio of 30% and a return on retained earnings of 20%. If the discount rate is 20%, calculate:

1. Dividend at year end. (2 marks)
2. Growth rate in Dividends. (2 marks)
3. The price of a share. (3 marks)